Thursday, April 24, 2008

Keeping a Cool Head

Carrying on with the theme of evidence-based management, most recently addressed in this post, I'd mention the thoughts on the subject offered by Deepak Malhotra (Harvard Business School), Gillian Ku (London Business School), and J. Keith Murnighan (Northwestern's Kellogg School of Management) in "When Winning Is Everything," published in the May 2008 issue of the Harvard Business Review.

Malhotra, Ku, and Murnighan (MKM) discuss the reasons decision makers sometimes make irrational bids in purchase situations, negotiate value-destroying deals, and otherwise undermine their organizations' best interests by pursuing what turn out to be Pyrrhic victories. The authors also present suggestions for minimizing this dysfunctional behavior, behavior they attribute to a psychological state they call "competitive arousal."

MKM identify three drivers of competitive arousal: rivalry, time pressure, and scrutiny by internal and/or external audiences (i.e., the decision maker's being in the "spotlight" as s/he is making a decision). The authors then go on to describe techniques for putting a brake on each of these drivers. MKM sum up by noting

... mental preparation can be an important defense. A simple and effective way to avoid unwise competitive behavior is to consider not simply prior mistakes but potential mistakes that may occur in competitive interactions. A number of our former students and clients role-play to prepare for major negotiations. By simulating upcoming deals, negotiators can anticipate the emotional reactions of competitive arousal and avoid behaviors that might derail otherwise sound strategy. Our research has shown that if managers do not have time to simulate an entire deal, they can still help avoid missteps by imagining future regrets about overpaying.

Bottom line: executives and managers should "focus their competitive energies toward efficiently winning contests in which they have a real advantage  and away from those in which winning comes at too high a cost."